Cement prices have more than doubled in the past seven years and, with production capacity currently “under pressure”, could rise even higher, placing the government’s infrastructure rollout in jeopardy.
Monthly cement price increases, supplied by the Bureau for Economic Research (BER), show that prices have increased by 143% between February 1998 and February this year, despite building material suppliers agreeing to limit price increases to below CPIX (inflation minus mortgages) when they signed the Botshabelo Accord with the Department of Housing in 1994.
The BER index uses 2000 prices as a base to measure real price increases and shows that prices have increased from 76,4 in 1998 to 185,5 in 2005.
A recent BER report on building costs says: “With building demand in recovery mode, suppliers of building materials are able to raise their prices in a buoyant market.”
Department of Housing spokesperson Ndivhuwo Mabaya confirmed that the department was concerned about building material prices and the ability of manufacturers to meet the country’s demand.
“The principles still exist and I believe, as government, we have built upon those principles of the Botshabelo Accord. Whether we have systems in place in the Department of Housing to monitor whether stakeholders are implementing all the principles is a very difficult question to answer,” said Mabaya.
The medium-term Budget policy statement, released last week by the National Treasury, highlighted the fact that brick and cement supply are “under pressure due to limited output capacity”.
It said: “Cement production capacity is 14,2million tons a year and cement demand is expected to increase to 17million tons by 2010.”
The statement said that the three large cement manufacturers aim to spend a total of R4,4billion on expansion to meet the rising cement demand.
Cement demand has grown by 31% in South Africa since 2000, according to statistics provided by the Cement and Concrete Institute (C&CI). According to the Pretoria Portland Cement Company (PPC), last year saw an annual increase of 15%, while C&CI estimates a R44billion was invested nationwide in residential and non-residential buildings.
Major projects such as the Michelangelo Towers in Johannesburg, Ushaka Marine World in Durban, Sibaya Casino in Umhlanga and the Clearwater Shopping Mall in Roodepoort contributed to this increase.
PPC forecasts a 9% increase this year and, according to C&CI’s 2004 annual report, the main driver of the civil construction industry over the next few years will be the government’s R165billion investment programme.
Major initiatives such as the N2 Gateway Project, Cosmos City, the Gautrain, the Coega Industrial Development Zone and the 2010 Soccer World Cup infrastructure drive are all expected to maintain the construction boom until at least 2010.
Add to this the government’s new housing strategy (R2-billion), transport infrastructure (R3billion), community infrastructure (R3billion) and prison upgrades (R3billion), and the expected infrastructure investment by Transnet (R40-billion) and Eskom (R87billion) over the next five years, and the importance of a reasonably priced building material supply becomes clear.
Mabaya said the department is delivering 200 000 houses a year and is planning to increase this by 12% over 2006/07.
“It is true that we are concerned about demand and supply,” said Mabaya. “There have been cases where the high-income market has been prioritised over the low-income market.”
Mabaya said the department has been meeting with stakeholders to discuss bulk-buying for low-cost housing and alternative building materials. “We are not only looking at finding solutions for cement, we are also looking at other ways for building houses, because at some point we will run out of cement.”
Mabaya said consultation had yielded positive results from the building material suppliers, and the signing of the Social Contract for Rapid Housing Delivery in September this year was a constructive step.
Asked whether the department would consider intervening in the industry to regulate cement prices, Mabaya responded: “We believe in consultation, not in a big-stick approach.”
The cement industry in South Africa is an oligopoly, an industry supplied by four manufacturers. PPC, the largest manufacturer, has a market share of 45% followed by Holcim (30%), Lafarge South Africa (18%) and Portugese company, Cimpar, which, through its ownership of Natal Portland Cement (NPC), has a market share of 7%. Manufacturers were reluctant to provide cement prices this week, claiming these were quoted to individual customers depending on variable costs.
Calls placed to the manufacturers’ sales teams resulted in a quote from Holcim of R447 a ton, excluding VAT, to have 20-mpa ready-mix cement delivered to our office. Lafarge quoted a price of R540. Using the BER rate of increase of 143%, a ton of cement would have cost an estimated R184 from Holcim in 1998 and R222 from Lafarge.
A sales consultant at NPC refused to give prices over the phone and said that NPC was currently not taking on any new customers due to its production capacity and the number of customers it already has.
PPC Group financial manager Suren Srikrishan said the company could not supply prices as that was “not publicly available information”.
Concrete steps to avoid a crunch
PPC, which currently has the capacity to produce 6,8-million tons of cement a year, is recommissioning all mothballed kilns, the major one being the Jupiter Kiln, which will cost R48-million. It has also announced its Batsweledi project, which involves building a new kiln line at Dwaalboom at a cost of R1,36-billion, which is expected to be operational by April 2008. It will be South Africa’s first new kiln line in 15 years and will increase the company’s inland capacity by one million tons.
Lafarge currently has the capacity to produce 2,6-million tons of cement a year. It announced in September that the feasibility study for the expansion of its Lichtenburg facility, to accommodate a further one million tons, had been completed and the expansion was set for completion in 2008.
Lafarge has already allocated R120-million to upgrade the cement grinding and packaging plant at Lichtenburg to increase grinding capacity by 30% and allow Lafarge to meet demand in the interim until 2008.
Holcim currently has the capacity to produce 3,7-million tons per annum and, according to spokesperson Wandile Zote, the company is currently preparing its budget review, which will contain potential expansion projects.
One such project is a mooted cement milling facility at a cost of R250-million. Zote also said their second kiln would undergo a major refurbishment in early 2006 and would be shut down for three months.
“We estimate that we will have enough stockpiled cement to prevent disrupting supplies during the kiln shutdown,” said Zote.
Natal Portland Cement currently has the capacity to produce just short of one million tons per annum, and Cimpor has announced plans to invest R792million in upgrading its South African factory by 2007. — Lloyd Gedye